Tuesday, September 30, 2008

Ratcheting down catastrophism again...

I know this may be pointing out the obvious, but I think it needs to be said: Lenders have to lend, just as much as borrowers have to borrow. I know most people understand the "borrower" part of this phrase, but they seem to act as if lenders are somehow only putting their money on the street as some sort of charitable activity, and if we don't sufficiently kow-tow to all their needs, they will run away and never help us all again.

The fact is that people with large pools of money -- banks, pension funds, insurance companies -- HAVE to lend. And in a time where stocks are dicey, they probably have more, not less, cash than normal they want to lend, much of it short-term. Now, they may be temporarily scared off from doing so for a few days or weeks as they try to assess what is safe and what is not, but they can't stick their money in a mattress or buy tons of gold or invest in ammunition and run for the hills. Banks have to pay off depositors; insurance companies often aim to break even on premiums and payouts and make their money on investing the cash in between; pension funds can't make their long-term obligations without making steady returns.Their very survival, in many cases, depends on making continuous returns off their free cash.

The second is from Just a Girl in Short Shorts, channeling my favorite lesbian financial planner Suze Orman appearing on Anderson Cooper:

Q: How worried should people be right now? Not only about stocks but mutual funds, portfolios, 401(k)s, jobs?

A: They should be worried about everything. And they should be so worried, not that we should start a panic, that they really start to truthfully change their behaviors.

They have to realize that nobody is joking here. They can’t continue to go out to eat, charge it on a credit card and then just pay the minimum at the end of the month. They have got to go into a different type of financial mentality...

I have to tell you, I don’t think that has sunk into them yet. so a few more days like this a few more things coming down the pike, they may go ‘oh, my God, we may be in serious trouble here.

Ultimately, there's still going to be credit for secured loans, like houses or cars, if you have a down payment and a decent credit history. There are going to be credit cards with reasonable limits for businesses and individuals in the middle class who have a proven track record of knowing how to use them.

What there's not going to be are unsecured credit cards for college kids, people working minimum wage or hourly part-time jobs, and the like.

Which is OK, because we seem to have forgotten one exceedingly important point lately:

Credit in a capitalist system is not a right; it's something you have to qualify for.